CT POST / Andrea A. Dixon / local / 2/18/05
Customers walks into the Wal-Mart in Derby Feb. 18. Connecticut Wal-Mart was found to have the most child-labor law violations.

CT POST / Andrea A. Dixon / local / 2/18/05
Customers walks into the Wal-Mart in Derby Feb. 18. Connecticut Wal-Mart was found to have the most child-labor law violations.

Photo: Andrea A. Dixon

Image 2 of 3

CT POST / Andrea A. Dixon / local / 2/18/05
A customer walks out of the Wal-Mart in Derby Feb. 18. Connecticut Wal-Mart was found to have the most child-labor law violations.

CT POST / Andrea A. Dixon / local / 2/18/05
A customer walks out of the Wal-Mart in Derby Feb. 18. Connecticut Wal-Mart was found to have the most child-labor law violations.

Photo: Andrea A. Dixon

Image 3 of 3

Recession has driven new consumers to Wal-Mart

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MINNEAPOLIS -- The Walmart store in Eagan, Minn., is a far cry from what it was five months ago. Gone are the pallets of merchandise that clogged the main aisles. The navy-colored signs have been replaced by a soft blue. Food offerings have tripled. And merchandise shelves are so low, shoppers can stand in one corner of the store and see across nearly every department.

"I love it," said Laura Johnson, a nurse who stopped by the store after work recently to pick up a couple of gallons of milk and get advice on netbook and notebook computers from the expanded consumer electronics department.

"The store is more organized, I like how it looks. And they have food -- lots more food!" said Johnson, a mother of two teenagers. The overhaul is part of a five-year, companywide effort launched late last year called Project Impact.

The strategy aims not only to make stores look cleaner and more open, but to fine-tune vast product offerings and reframe the way Wal-Mart markets itself to consumers. In many ways, Walmart has become more like its top competitor -- Minneapolis-based Target Corp. The strategy comes at a key time.

As the recession has widened, Walmart has continued to outperform nearly all retailers, including Target, as well as stores that aim for a piece of its business, such as Best Buy, Toys 'R' Us and even smaller specialty chains such as Michaels crafts store. Now the fight is on to keep those shoppers.

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Going into the crucial holiday season, Walmart cut prices earlier and on more items. It dropped prices on best-selling books, such as Stephen King's "Under the Dome," to under $9 online, forcing Amazon and Target to match prices.

Last week it began selling Nintendo Wii consoles for $149 (if you include a $50 Wal-Mart gift card), $100 less than prices a year ago.

While a Time magazine headline called Project Impact "a move to crush the competition," the company distanced itself from such terms of aggression. "I don't know that it rises to the level of war," said Wal-Mart spokesman John Simley. "It's good old-fashioned price competition. War implies so many things that I don't think reflect what we're doing."

It's hard not to notice that Wal-Mart stores are looking more and more like Target

The floors are shiny, the lighting is bright. The vibe of "Action Alley," the main walkway around the store perimeter, has changed. What once evoked a warehouse, grab-and-go treasure hunt that encouraged customers to weave around stacks of deeply discounted merchandise has given way to roomier aisles. Everything is being simplified -- from the number of words on signs to prices.

The Spike Jr. dinosaur, once listed at $19.97 has been marked down to an easier-to-read $18. Wal-Mart, which once carried 28 kinds of tape measures, according to one executive, also has pared down products in scores of categories, including throw pillows and paper towels.

"Our customer has 21 minutes, on average, in stores," said Simley. "The idea is to allow her to make the best possible use of her time while she's there."

In recent years, the smiley-face logo has been edged out by what insiders call the "Wal-Mart spark." Staff members have shed the bulky smocks in favor of navy shirts and khaki pants, not unlike Target's dress code of red shirt and khaki pants. Wal-Mart also swapped out its tag line: "Always Low Prices. Always."

The new message -- "Save Money. Live Better" -- now in its second full year, shifts the emphasis from low-price to get at quality-of-life issues. That's also the focus of Target's motto: "Expect More. Pay Less."

About a third of Wal-Mart's 3,600 U.S. stores have gotten the top-to-bottom redo to date.

Target spokeswoman Susan Kahn said Target remains "completely committed" to its own strategy.

"While there are a lot of people trying to make this a contest between Wal-Mart and Target, Wal-Mart clearly is a wonderful company and a formidable competitor who has a lot of appeal to its customers," she said. "But it's not just about Wal-Mart versus Target."

With a hard-charging advertising push in TV and newspaper ads, Target executives say its customer is coming back. Last November, monthly sales dropped 10.7 percent. This November's sales were down 1.6 percent, with the number of transactions up, even though cautious shoppers didn't spend as much.

Wal-Mart's fortunes are changing, too, as consumers slog through the longest recession since the 1930s. After going a year without seeing a fall in quarterly same-store sales, Wal-Mart experienced back-to-back drops -- a 1.2 percent dip in the second quarter and a 0.4 percent decline in the third, which was reported in mid-November.

Target has become more aggressive on pricing, recently launching a price-matching policy (though it won't match some specials). On Black Friday it offered $3 coffee makers, slow cookers and other small appliances.

Analyst Mark Miller, of William Blair & Co. in Chicago, has been comparing pricing and merchandising strategies between Target and Wal-Mart for five years. Wal-Mart has historically won on price, but the gap across 60 items at Wal-Mart and Target has narrowed in the past year, he said.

While Wal-Mart says Project Impact is driving consumer satisfaction to an all-time high, Wall Street hasn't been so generous. The stock essentially is flat from a year ago.

But stock prices indicate "Wal-Mart has been a big underperformer," Brunner said. "Wal-Mart doesn't win when everyone is fighting for the lowest price, as they are now. Wal-Mart wins when prices are going up and people want to go to the low-priced outlet."

Wal-Mart's stock hit an all-time high of around $70 just before the beginning of this decade, and since then, it's been trapped mostly between $45 and $60 a share.

It didn't have the dramatic drops that competitors did during the past few years -- Target's shares fell from more than $70 to about $25 in a 21-month stretch, though it's risen since. But Wall Street obviously hasn't yet seen a big upside in Wal-Mart either.

One notable investor seems to think there will be. Warren Buffet has been shopping, spending the summer nearly doubling Berkshire Hathaway's shares of Wal-Mart to almost 39 million shares as of Sept. 30. His stake is worth about $2 billion.